In the fourth quarter, seasonally adjusted real gross domestic product (GDP) rose by 0.2 % on the quarter, according to an initial estimate by the Federal Statistical Office. Industry is likely to have picked up again, the Bundesbank’s experts write in the current Monthly Report. Output probably increased significantly in seasonally adjusted terms towards the end of the year. Demand for industrial goods likewise improved in the fourth quarter. Exports declined again, but the trend in foreign demand continued to point upwards. In addition, domestic demand rose sharply recently, with orders in other transport equipment, which includes military vehicles, likely to have played a role in this. However, the still low capacity utilisation continues to weigh on business investment. Private consumption benefited from a sharp rise in wages and thus contributed to GDP growth. 

Construction sector also providing positive impetus

The construction sector likewise provided positive impetus in the fourth quarter. Investment in infrastructure and modernisation is likely to have led to growth in finishing trades and civil engineering. By contrast, the decline in building construction continued, suggesting weakness in housing construction Business expectations in the construction sector deteriorated overall in the fourth quarter, which is why, in line with the December 2025 Forecast for Germany, the Bundesbank’s economists are expecting only a slow recovery.

Labour market remains subdued

The labour market, which has been dampened by weak economic growth, remained virtually unchanged at the end of 2025, the economists write. In November, employment in Germany remained at the previous month’s level of 45.95 million persons in seasonally adjusted terms. Continued industrial job losses were offset by growth in the services sector.

Looking at the corresponding indicators, no improvement can be expected in the coming months. In December, the ifo employment barometer, a survey of the recruitment plans of trade and industry over the next three months, dropped to its lowest level since the COVID-19 pandemic.

Unemployment rose slightly in December, with the unemployment rate remaining unchanged at 6.3 % due to rounding. Here too, the prospects of a fall in registered unemployment have deteriorated recently, according to the Bundesbank.

Inflation rate falls significantly to 2.0 %

In a year-on-year comparison, the inflation rate as measured by the Harmonised Index of Consumer Prices (HICP) fell significantly from 2.6 % in November to 2.0 % in December. In December, the HICP dropped by a seasonally adjusted 0.2 % on the month, following a slight increase in prices in the previous month. This was due mainly to a decline in prices for energy and for industrial goods and food. By contrast, prices for services rose moderately, which is partly attributable to rent inflation. At the beginning of the year, the inflation rate is unlikely to fall any further and will hover around the 2 % mark, the Bundesbank’s experts write.